Understanding Financing Options For Musicians and Producers

There are some in the music world that say there is no need for a label anymore because the technology allows musicians to do it all on their own. Sure that's true to a point, but just because you can do it on your own, doesn't necessarily mean it's in your best interest to do it.

As you advance in your music career, there are more and more business challenges that begin to come up. "Mo Money Mo Problems" right. If you are uncomfortable negotiating, marketing, selling, advertising, promoting and creating a business plan, then the single best business decision you can make as an artist or producer is to work with a partner that excels with those skills.

On the other hand, say you do excel at not only creating music but handling your business, there inevitably becomes a point where you want to scale your efforts. To scale you will need money, or in the business world "capital" to make that happen.
Now let's talk finance first for a second. Traditionally there are 3 types of ways to get financing. The first way is through a bank via a business loan or personal loan. For musicians and producers, it is incredibly difficult to get financing this way to help scale your music efforts. It's considered very risky and the only way to do it is to have solid credit, substantial collateral, and hard financial numbers to get them to even consider it.

The second type of financing comes in the form of crowdfunding or grants. Think of this type of financing as a loan that you never have to pay back. This is becoming a more popular option for musicians and producers with a fan base of support. Basically appealing to them directly to help with creative projects. Along the same lines are grants that support the arts. Music grants are another form of financing that you never have to pay back. These grants have guidelines which need to be met to qualify and the hardest part is finding ones that apply to you.

The third way to get financing is from an investor. Basically an investors sole goal is to get a return on investment. What that means is if they give you $1000 they expect to make $1000+ in return. Getting investors to put up money to help finance your music goals can be difficult because there is risk and unknown involved.

When it comes to financing this is where a label is supposed to shine. For musicians, one of the best ways to describe a label is an investment bank for artists. It's a lot easier to get an advance (financing) that is recouped through future sales from a label then it is from a traditional bank or investor. It takes money to make money and if you want to scale, you are going to need financing. It is a fact of business, but just because you need money, doesn't mean that you need to take a shit deal.

It's actually the exact opposite. The more success you are having at the scale you are on, the more leverage you have negotiating a deal. The new music industry works a little different then it did in the past because labels aren't cultivating and developing artists, they are scaling them.

The way scaling works has to do with the numbers. Say you have 1000 fans and out of that 900 of them has bought your album, merchandise, tickets to your show, or whatever. Scaling works with the logic that if 900 out of 1000 people are purchasing, then with time and money 90,000 out of 100,000 should purchase.

Now don't get me wrong, not all labels are created equal. Anymore, there are A LOT of shit labels out there. If the label lacks the bank or the business connections/business skills to scale your music then don't sign with them. There is no reason to tie up your music with someone that isn't going to do shit for you. Labels like that are glorified digital distributors and that is not what you need. You can do digital distribution yourself just as easily.

Do your research, and don't sign anything till you understand what you are signing.